Albertsons LLC's deal Wednesday to acquire DineInFresh Inc., known as Plated, for a reported $200 million is only the beginning of what could be a boom in the maturing industry of meal-kit delivery, according to industry sources.
"I'm not surprised by seeing the deal come across the wire," said Michael McDevitt, CEO of Terra's Kitchen LLC, a meal-kit company back by New York VC outfit KiwiVenture Partners. He called Albertsons' Plated acquisition "the first domino" to fall.
Plated is backed by Greycroft Partners and other venture firms and represents just one of a plethora of meal kit companies that has garnered growth investments as consumers gravitate toward in-home dining and buying groceries online. As traditional grocers look to expand their e-commerce offerings -- and keep up with the new Whole Foods-Amazon.com Inc. (AMZN - Get Report) juggernaut -- meal kits are prime for the picking.
"When you have an industry like grocery where 10% of revenue is expected to shift to e-com over the next five years, that's a very different business model," McDevitt said, which leaves grocers with "two options: build it yourself and innovate internally, or go out and acquire it."
Cushman & Wakefield Inc. analyst Garrick Brown predicted after the Whole Foods deal was announced that Albertsons, as well as competitors including Kroger Co. (KR - Get Report) , Publix Super Markets Inc. and HEB Grocery Company LP could look to acquire startups like Blue Apron Holdings Inc. (APRN - Get Report) and HelloFresh SE, which is said to be revisiting a potential IPO and was valued at €2 billion ($2.4 billion) after a December fundraise. A person familiar with the matter said that Albertsons and Plated have been in talks for a few months.
Amazon is likely entering the meal kit space as well, having filed a trademark application for meal kits on July 6.
For those that will acquire, there are targets aplenty, as the space had attracted substantial investment from venture capital and Big Food alike.
Nestle SA led a $77 million round to Freshly Inc. in June. Campbell Soup Co.- (CPB - Get Report) and Smithfield Foods Inc.-backed Chef'd LLC has partnered with everyone from Hershey Co. (HSY - Get Report) to the New York Times Co. (NYT - Get Report) to launch branded meal kits. Chef'd closed a $35 million Series B round featuring in August.
Unilever NV's (UN) venture unit, Unilever Ventures Ltd., announced May 11 that it led a $9.2 million Series C-2 round for organic meal kit provider Sun Basket Inc. Tyson Foods Inc.'s (TSN - Get Report) Tastemaker kits are sold on Amazon, while Conagra Brands Inc. (CAG - Get Report) sells kits through online grocer Peapod.com. Whole Foods last year began selling meal kits from vegan provider Purple Carrot. Private equity firm L Catterton invested $40 million in Home Chef parent Relish Labs LLC's Series B round last year.
Even the best-funded startups are feeling the heat. Bloomberg reported that Munchery Inc. is struggling to stay afloat despite raising $120 million from VC stalwarts Menlo Ventures and Sherpa Capital.
Blue Apron itself could be a target after its disappointing IPO on June 29. The company went public at $10 per share, well below its pre-IPO valuation, after slashing its anticipated range from $15 to $17 per share. Among Blue Apron's high-profile backers are Fidelity Management and Bessemer Venture Partners, who pumped $135 million into the company two years before its IPO. Activist hedge fund Jana Partners LLC, which made $300 million after agitating for the Amazon-Whole Foods merger, took a 2% stake in Blue Apron last month.
Plated itself has raised about $56 million in venture capital funding, most recently landing a $35 million Series B round led by existing investors Greycroft and Formation 8. Terra's Kitchen itself is "currently talking to some potential strategic partners" about potential deals, McDevitt said.
However, there is no promise that this funding will continue and for some in the meal kit business the capital intensiveness of gaining exposure could lead companies to seek out deals with strategics to gain exposure. There's also the obvious synergies in food costs of meal kit companies. Grocers, too, would alleviate the meal kit industry's largest expenditure: food. Albertsons and Plated will likely also benefit from increased infrastructure flexibility. McDevitt estimates that Blue Apron has spent $300 million to build its infrastructure, which includes warehouses in Richmond, California and Linden, New Jersey.
Albertsons says it has 35 million customers in stores across 35 U.S. states, which McDevitt argued will give the meal kit space much-needed exposure. In the quarter ending March 31, for instance, Blue Apron's marketing expenses totaled $60.6 million, or 24.8% of its net revenue. Cost of goods sold, which includes food and fulfillment costs, was about $168.5 million during the period.
"If [Albertsons] do integrate and consumers start to see Plated on the shelves, that'll drive awareness to the industry," he said. "Albertsons has some significant buying power which helps organizations like Plated reduce their food costs and pass on those savings to the consumer.
Some grocery stores are developing meal kits internally instead of acquiring startups. Fresh Market Inc., which Apollo Global Management LLC (APO - Get Report) acquired last year for $1.4 billion, offers $10-and-up Little Big Meal kits, while Kroger is testing its new Prep+Pared line of kits.
Cerberus Capital Management LP-backed Albertsons plans to turn Plated into "the first omnichannel meal kit offering with national scale," the buyer said in a statement. Beyond its traditional subscription model, Albertsons will offer Plated meal kits in "many" of its stores and online. The person familiar with Albertsons said other distribution options include online home delivery, home delivery via app and click-and-collect.
Cerberus acquired Albertsons and four other retail chains from SuperValu Inc. (SVU) for $3.3 billion on Jan. 10, 2013. Albertsons paid about $9 billion for fellow grocer Safeway Inc. in 2014 and in 2015 the Boise-based grocer filed for a $2 billion IPO. The company has yet to go public, although it's continued to update its financial results in SEC filing, suggesting it may ultimately opt for an IPO.
Albertsons representatives were not available for comment. Plated did not respond to requests for comment.
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